M/S. SATELLITE TELEVISION ASIA REGION ADVERTISING SALES B.V., Mumbai V. THE ADIT (I.T) 3(1), Mumbai

ITA 1841/MUM/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1986 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 1999-2000
• Appeal Filed On: 19-03-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJIT KUMAR SINHA
• Keywords: Permanent establishment
• Section: 143(3); 234B

Judgement Text

ITA NO. 1841 /MUM/04 ASSESSMENT YEAR 1998 - 99 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBU NAL MUMBAI L BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR ( ACCOUNTANT MEMBER), AND SHRI R S PADVEKAR ( JUDICIAL MEMBER) ITA NO. 1841/MUM/04 ASSESSMENT YEAR 1999 - 2000 SATELLITE TELEVISION ASIA REGION ADVERTISING SALES BV .APPELLANT C/O S R BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWERS NARIMAN POINT, MUMBAI 400 021 VS. ASSISTANT DIRECTOR OF INCOME TAX - INTERNATI ONAL TAXATION 3 (1), MUMBAI . RESPONDENT SCINDIA HOUSE, BALLARD PIER, MUMBAI 400 001 APPE LLANT BY : SHRI PORUS KAKA RESPONDENT BY : SHRI AJIT KUMAR SINHA O R D E R PER PRAMOD KUMAR: 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER DATED 22 ND DECEMBER 2003 PASSED BY THE CIT(A), IN THE MATT ER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 1999 - 2000. ITA NO. 1841 /MUM/04 ASSESSMENT YEAR 1998 - 99 PAGE 2 OF 5 2. GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS: GROUND NO. 1 THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE APPELLANT IS A CONDUIT FOR SATELLITE TELEVISION ASIAN REGION LIMITED ( STAR LTD. ). GROUND NO. 2 THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE STAR INDIA PVT LTD IS A DEPENDENT AGENT OF STAR LIMITED. GROUND NO. 3 HAVING HELD IN GROUND NO. 1 OF APPEAL THAT THE APPELLANT IS A CONDUIT O F STAR LTD, THE LEARNED CIT(A) HAS NOT CONSIDERED IT RELEVANT TO ADJUDICATE ON THE BALANCE GROUNDS OF APPEAL AS DETAILED BELOW: (I) CONCLUDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT IN INDIA UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT EXECU TED BETWEEN INDIA AND THE NETHERLANDS ( NETHERLANDS TREATY ); (II) WITHOUT PREJUDICE TO THE ABOVE, CONCLUDING THAT THE APPELLANT IS NOT ELIGIBLE TO BE TAXED AS PER THE PROVISIONS OF CIRCULAR 742 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES; (III) WITHOUT PREJUDICE TO THE ABOVE, CONCLUDING THAT STAR LIMITED HAS A PERMANENT ESTABLISHMENT IN INDIA; AND (IV) LEVYING INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT. 3. LEARNED REPRESENTATIVES THAT WHATEVER BE THE OUTCOME OF ASSESSEE S APPEAL FOR THE ASSESSM ENT YEAR 1998 - 99, THE SAME WILL APPLY HERE AS WELL. VIDE OUR ORDER OF EVEN DATE, WE HAVE PARTLY ALLOWED THE SAID APPEAL BY, INTER ALIA, OBSERVING AS FOLLOWS: 6. THE BASIC CASE OF THE REVENUE, IN OUR HUMBLE UNDERSTANDING, IS THAT THE ASSESSEE BEFORE US IS USED AS A COMMERCIALLY IRRELEVANT IN ITA NO. 1841 /MUM/04 ASSESSMENT YEAR 1998 - 99 PAGE 3 OF 5 INTERMEDIATE ENTITY, WHICH ARE USUALLY REFERRED TO PE BLOCKER, SO AS TO RESTRICT TAX EXPOSURE OF THE STAR LIMITED IN INDIA. IT IS ON THIS BASIS THAT THE ASSESSING OFFICER HAS COME TO THE CONCLUSION THAT THE REAL TAXAB ILITY OF ADVERTISING REVENUES MUST LIE IN THE HANDS OF THE STAR LIMITED. AS A COROLLARY TO THIS, ACCORDING TO THE ASSESSING OFFICER, THE SAID INCOME CANNOT BE TAXED IN THE HANDS OF THIS ASSESSEE. THE CASE OF THE REVENUE THUS HINGES ON ITS PERCEPTION THAT THE STAR LTD IS DERIVING TAX ADVANTAGE BY INSERTING THE ASSESSEE COMPANY AS A LINK IN CHAIN OF ENTITIES TO GET THE ADVERTISING REVENUES. THIS PERCEPTION IS, HOWEVER, CLEARLY ERRONEOUS. AS HELD BY HON BLE BOMBAY HIGH COURT IN THE CASE OF SET SATELLITE (S INGAPORE) PTE LTD VS DDIT (307 ITR 205), IN TERMS OF CBDT CIRCULAR NO. 23, WHERE A NON RESIDENT S SALE TO INDIAN CUSTOMERS ARE SECURED THROUGH AN AGENT, THE ASSESSMENT IN INDIA OF THE INCOME ARISING FROM THE SAID TRANSACTION WILL BE RESTRICTED TO AMOUNT OF PROFIT WHICH IS ATTRIBUTABLE TO THE AGENTS SERVICES. NO DOUBT, THIS CIRCULAR IS NOW WITHDRAWN WITH EFFECT FROM 22 ND OCTOBER 2009 BUT A WITHDRAWAL OF THE CIRCULAR, AS IS THE SETTLED LEGAL POSITION, IS ONLY PROSPECTIVE IN NATURE. IN THE RELEVANT PERIOD, T HE CIRCULAR WAS VERY MUCH IN FORCE AND CANNOT BE IGNORED. NOW, WHETHER THE ADVERTISING REVENUES ARE TAXED IN THE HANDS OF THE ASSESSEE COMPANY OR IN THE HANDS OF THE STAR LIMITED, THERE IS NO DISPUTE THAT THE ADVERTISING REVENUES ARE GENERATED THROUGH THE COMMISSION AGENT I.E. STAR INDIA PVT LTD AND THAT THE COMMISSION AGENT HAS BEEN PAID A FAIR REMUNERATION FOR ITS SERVICES. THAT INCOME IS ALREADY TAXED IN THE HANDS OF THE STAR INDIA PVT LTD, AND, IN TERMS OF THE CIRCULAR 23, TAXABILITY IN RESPECT OF SUCH SALES CANNOT EXTEND BEYOND THAT INCOME. IN VIEW OF THE LEGAL POSITION AS IT NOW STANDS NOW, THERE IS NO TAX ADVANTAGE IN ROUTING THE REVENUES THROUGH THE ASSESSEE COMPANY. 7. IN ANY CASE, WE HAVE ALSO NOTICED THAT THE ASSESSEE COMPANY WAS FORMED NOT ONL Y FOR PROCURING ADVERTISING BUSINESS FROM INDIA BUT ALSO FROM OTHER COUNTRIES. IT IS THUS CLEAR THAT THE ASSESSEE GROUP CHOSE TO CENTRALIZE THE SALE OPERATIONS TO THE ASSESSEE COMPANY ON A GLOBAL BASIS AND IT WAS NOT DRIVEN BY INDIAN TAX CONSIDERATIONS AL ONE. LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO ADDRESSED US AT LENGTH ON COMMERCIAL JUSTIFICATION OF ROUTING THE ADVERTISING SALES BUSINESS THROUGH THIS COMPANY, WHICH INCLUDED TRADE DISPUTES SETTLEMENTS OF STAR LIMITED WITH ITS FORMER ASSOCIATE MEDISCOP E WHICH WAS APPOINTED EXCLUSIVE AGENT FOR SOME PART AND NON EXCLUSIVE AGENT FOR OTHER PART OF THE BUSINESS IN INDIA, AND WHICH IS WAY THE ASSESSEE COMPANY HAD TO BE BROUGHT TO THE PICTURE. COPIES OF DOCUMENTS EVIDENCING THESE DISPUTES AND THEIR SETTLEMEN TS WERE ALSO FILED BEFORE US. LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY REASONS AS TO WHY ALL THESE COMMERCIAL JUSTIFICATIONS CAN BE IGNORED. ITA NO. 1841 /MUM/04 ASSESSMENT YEAR 1998 - 99 PAGE 4 OF 5 8. BASED ON THE MATERIAL BEFORE US IN THE CASE OF THIS CASE, THERE IS NO GOOD REASON THUS TO DISREGARD THE EXISTENCE OF THE ASSESSEE COMPANY AND PROCEED TO TAX THE ENTIRE ADVERTISING REVENUE IN THE HANDS OF ITS PARENT COMPANY. IT IS DIFFICULT TO UNDERSTAND THE REASONING ADOPTED BY THE CIT(A) WHO HAS OBSERVED THAT GIVEN THE FACTS OF CASE, IT WOUL D BE MORE APPROPRIATE TO TAX THE INCOME IN THE HANDS OF THE STAR LIMITED. HE EXERCISED A CHOICE WHICH WAS NOT AVAILABLE TO HIM. WHAT IS TO BE TAXED IN THE HANDS OF STAR LIMITED IS TO BE DECIDED WHEN THE ASSESSMENT OF STAR LIMITED IS FINALIZED, AND HOW CA N ANY FINDING BE GIVEN AGAINST STAR LIMITED WITHOUT EVEN HEARING THE SAID ASSESSEE. THE COURSE OF ACTION ADOPTED BY THE CIT (A), IN TAXING THE INCOME IN THE HANDS OF THE STAR HONG KONG RATHER THAN DOING SO IN THE HANDS OF THE ASSESSEE, DOES NOT MEET OUR AP PROVAL. HAVING SAID SO, HOWEVER, WE MAY HASTEN TO ADD THAT THIS DECISION WILL HAVE NO BEARING ON THE QUESTION AS TO WHETHER THE STAR LIMITED WILL BE TAXABLE IN RESPECT OF THESE INCOMES DIRECTLY, AS WE DO NOT WANT TO BE SEEN AS PRE - EMPTING THE DECISION IN T HE CASE OF STAR LIMITED. THAT IS A QUESTION WHICH CAN BE DECIDED AFTER TAKING INTO ACCOUNT MATERIAL ON RECORDS IN THAT CASE AND AFTER HEARING THE STAR LIMITED, NO IS IT ANY OF OUR CONCERN TO GIVE THAT FINDING. THE SUBJECT MATTER OF APPEAL BEFORE US MUST B E RESTRICTED TO THE APPEAL BEFORE US, AND WE SHOULD BE CAREFUL IN BEING WITHIN THESE LIMITS. ALL WE CAN SAY IS THAT, ON THE BASIS OF MATERIAL PRODUCED BEFORE US IN THE CASE OF THIS ASSESSEE, THERE IS NO GOOD REASON TO COME TO THE CONCLUSION THAT THE INCOME FROM SALE REVENUES OF ADVERTISING TIME DOES NOT BELONG TO THE ASSESSEE. WE LEAVE IT AT THAT. 9. FOR THE REASONS SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER WAS NOT QUITE JUSTIFIED IN TAXING THE INCOME FROM ADVERTISING TIME SA LES IN INDIA COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. HE OUGHT TO HAVE TAXED THE SAME IN THE HANDS OF THE ASSESSEE COMPANY. 10. AS REGARDS THE OTHER ISSUES RAISED IN THIS APPEAL, WE HAVE NOTICED THAT THE CIT(A) HAS NOT REALLY ADJUDICATED UPON THE SAME. WE, THEREFORE, REMIT THE MATTER TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION ON THE SPECIFIC GRIEVANCES RAISED BY THE ASSESSEE ON THE QUANTIFICATION OF TAXABILITY OF INCOME AND OTHER CONSEQUENCES. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US IN ASSESSEE S OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR. ITA NO. 1841 /MUM/04 ASSESSMENT YEAR 1998 - 99 PAGE 5 OF 5 RESPECTFULLY FOLLOWING THE SAME, WE PARTLY UPHOLD THE GRIEVANCE OF THE ASSESSEE IN THE MATTER INDICATED ABOVE AND REMIT THE MATTER TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION ON SOME OF THE POINTS. THE OBSERVATIONS MADE IN OUR ORDER FOR THE ASSESSMENT YEAR 1998 - 99 WILL APPLY MUTATIS MUTUNDI FOR THIS ASSESSMENT YEAR AS WELL. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PR ONOUNCED IN THE OPEN COURT TODAY ON 21 ST DAY OF MAY, 2010. SD/XX SD/XX (R S PADVEKAR) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 21 ST DAY OF MAY , 20 10. COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), MUMBAI 4. COMMISSIONER (APPEALS) , MUMBAI 5. DEP ARTMENTAL REPRESENTATIVE, L BENCH, ITAT, MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI